Vietnam Assets

This thread has been created to discuss the Vietnam assets. These currently consist of:

a) CNV - an operating field in block 9-2 with 155mn boe of gross 2P reserves

b) TGT - a field which is about to enter development. Gross 2p recoverable reserves of 300+mn boe (management think it will ultimately be closer to 500mn) should be confirmed soon, as the final government approval for the development plan is now very close.

c) TGD and the rest of the HPHT appraisal area - huge exploration potential of over 1bn boe P50 recoverable

d) VT appraisal area - a small discovery area likely to be relinquished

I'll fill in more details in due course.

ee

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SOCO International plc (SOCO) is an oil and gas exploration and production company. The Company's segments include South East Asia and Africa. It has field development and production interests in Vietnam, and exploration and appraisal interests in the Republic of Congo (Brazzaville) and Angola. In Vietnam, SOCO's Block 16-1 and Block 9-2 include the Te Giac Trang and Ca Ngu Vang Fields, which are located in shallow water in the Cuu Long Basin, near the Bach Ho Field. SOCO holds working interest in Block 16-1 and Block 9-2 through its subsidiaries, SOCO Vietnam Ltd and OPECO Vietnam Limited. SOCO holds its interests in the Marine XI Block, located offshore Congo (Brazzaville) in the shallow water Lower Congo Basin, through its subsidiary, SOCO EPC. SOCO holds working interest in the Mer Profonde Sud Block, offshore Congo (Brazzaville) through its subsidiary, SOCO Congo BEX Limited. SOCO's subsidiary, SOCO Cabinda Limited, holds participation interests in the Cabinda North Block. more »

I do wonder if a sale of the whole company (Rather than just Vietnam) is now required/desired by management to trigger a "change of control" that would then see all the LTIP & option schemes crystallize?

Yes that is a good point. Though there is no reason why these things couldn't happen in closely-linked stages. And it is also true that the value of outstanding options/LTIPs relative to actual shares held is at an all-time low for the major players (probably only about 10% ish).

I think the odds have moved in favour of a whole company deal over the last year or two, but mainly because of management/board demographics rather than option positions.

So does the recent farm in make a whole company sale more, or less attractive to potential suitors?

Seems like more work for the buyer if his priority is production as he will presumably want to cover himself on what value he can achieve on any likely disposals of the exploration side before coming up with a sum of the parts bid price?

ISTM that the farm-in sends out a signal that anyone interested in buying the whole co in order to get hold of the Viet Nam assets could achieve a cleaner deal by moving in the near future rather than waiting. If Soco does more farm-ins or buys more early stage explo assets then a) they make the portfolio more difficult to integrate/rationalise and b) they spend cash. A predator would probably prefer to avoid bot those things.

I think SOCO (often wondered what that stands for? Something Corporate?) will be hard to take out in a predatory manner unless its a stunning offer due to the distruibution/makeup of of share holders. (ie Unlike Venture & Dana who were hostile T/O).

The advantages of a mutual takeover would mean the ability to undertake full due diligence.
I think any offer will be proven reserves based so at the moment that's Vietnam and the rest is noise,albeit with some financial commitments.
I think you are right that the waters will get muddier as time goes by and no deal is done. The company has no choice but to keep moving forward rather than sit doing nothing with a for sale sign up. At least theres now a mechanism for outing value in place.

It is interesting to compare the flow test results on the TGT-10X well on the H5 fault block with the test results announced by Talisman in the Nam Con Son basin.....a total of 7,000bopd from three zones - all of which were much heavier than SOCO International (LON:SIA) 's recent test of 27,600bopd.

I'd say that Talisman's Vietnam business is in need of a big shot in the arm!

Slide 16 ("page 14") from recent Talisman presentation, showing production at HST/HSD was only 8,000bopd for 2013 and is forecast stuck at 12,000 bopd for most of 2014 - suggesting that the capacity boost for FPSO testing is likely to have to come from TGT as HST/HSD doesn't seem likely to deliver as planned.

On a glass half empty basis, is there any read-across for us in the reasons for Talisman's shortfall ?

No. Not so far as I am aware anyway. Their fields are a quickly-depleting pimple piggy-backing on an elephant - though if you take their presentation slide at face value you will also see they think there is some upside based on their early production experience.

In 2013, HLHVJOCs’ successfully drilled and performed well testing operations on the TGT-10X. This was the key for the HLHVJOCs’ Management to turn the green light on for the construction of the Production Platform for TGT-H5 structure.

I assume that they need to have decided between using an FPSO and a tie-in before constructing this production platform?

Construction of the H5-WHP (wellhead platform) jacket and drilling deck is complete. Offshore installation of the platform should be completed soon, with the jackup Naga 2 due to start drilling the five initial planned wells from mid-September onward.

Production will be tied-in to the FPSO serving TGT via a pipeline from the H5 WHP to the H1 WHP.

The FPSO’s oil throughput remains contractually limited to up to 40,000 b/d of its 55,000 b/d capacity. De-bottlenecking of the facility and increasing TGT production are therefore priorities for the partners.

However, a delay to this year’s drilling program has forced operational planning changes, the main one being to accelerate testing of the FPSO’s total liquids (oil and water) handling capacity.

The test program in July successfully confirmed an increase to around 140,000 b/d of liquids. It also confirmed minor additional modifications are needed to increase the capacity to more than 160,000 b/d.

IIRC the previous total fluids capacity was 125,000....so if they can both raise the total fluids capacity and convert some capacity to oil then perhaps production can be raised sooner than expected?

Thanks, ee - good find. I'm a little bemused why a delay to this year's drilling program (and presumably lower potential production, which I'd understood was a reason for hold ups in capacity testing) is now given as being a factor that "forced" accelerated testing of fluid capacity?

Good news though, and it must certainly be a marker, as you say, for useful increases in oil production once they get the wells sorted.

.....everything is now ready for the offshore installation to secure the target of first
production from the TGT H5-WHP in August 2015, two months earlier than
the deadline approved by the Government, which increases the production
output from the TGT field by more than 11,000 barrels per day. This
achievement not only safeguards the production plan of PVN, PVEP and the
Petroleum Contract’s Partners of Block 16.1 (SOCO, OPECO and PTTEP),
but also makes a contribution to the national energy security,
territorial integrity and offshore economic activity security.

Given that the H5 topsides sailed away 5 days ago for the installation, I'm guessing that this morning's announcement of the results date followed confirmation that all had gone well in Vietnam with the installation of the topsides - and that we may be looking at 5th August as the date of first oil from H5. That early increase in production will be very welcome indeed as should help considerably in progressing the RAR and revised FDP for the TGT field as a whole - which is a key catalyst for value, IMO.

However, that article does support the optimism at the AGM regarding H5 start-up.....and an early start-up can't hurt the chances of making progress with getting partners aligned and raising production. The big issue, of course, is the oil price (soft again tonight).....but I'd like to think that a plan to raise production materially can be put in place before the oil price moves much, because the cost of services needed to expand production will then be relatively low. As ever, it is a matter of timing......

....but can sentiment get much worse for either the stock or the sector?

I have to say that if I didn't own more than enough already I'd be up for some modest toe-dipping. I've done that in recent weeks in a couple of other sector stocks, mainly on the view that the "baby has been thrown out with the bathwater" in the sector. Balance sheet strength, cash and/or cashflow are all key though - as are modest or fully-funded work programmes.

As for the "M&A Game" here, it remains a guess - as ever......but an agreed FDP would be a serious catalyst. It may be worth noting in that context the AGM comment from Ed Story that all that is needed is a shared understanding of the development economics - you don't need to have an approved FDP or RAR to get stuff done if everyone agrees.

however without attributing to anyone in particular as I can't be bothered to go back and check who said what exactly, I do recall discussions about how SOCO wouldn't ever produce oil on tgt, and we've had phase one and two now running for years, and about to have H5 go into production hopefully in the next few weeks. but yes you're right H5 hasn't yet started up !!